Commercial real estate prices in Germany declined in the second quarter, interrupting the gradual recovery seen over the previous five quarters, according to data released by the VDP banking association. 
The decline comes after several years of weakness in the German property market. Commercial property values had fallen sharply following the outbreak of the war in Ukraine, which contributed to higher inflation, rising interest rates and tighter financing conditions. The recent recovery had only partly reversed those losses before the latest decline. 
Office and retail property prices fell 1% in the second quarter compared with the same period a year earlier. This was a reversal from the 0.5% annual increase recorded in the first quarter. 
The latest movement also reflects the impact of renewed geopolitical uncertainty. The conflict involving Iran and the wider Middle East has increased concerns over inflation and borrowing costs, both of which affect the financing and valuation of commercial properties. 
VDP CEO Jens Tolckmitt said commercial real estate was responding more sharply than residential property to geopolitical developments, higher inflation expectations and changes in interest rates. 
The difference between the two segments was visible in the latest figures. Residential property prices continued to increase, rising 1.9% year-on-year in the second quarter, although the pace of growth slowed from 2.3% in the first quarter. 
The pressure on commercial property prices has also been accompanied by weaker sentiment among lenders. A survey conducted during the second quarter showed a sharp deterioration in the mood among German commercial real estate financiers. 
The BF.Quartalsbarometer, compiled by BF.direkt and the Handelsblatt Research Institute, fell to -25.97 points from -9.74 points in the previous quarter. The reading indicated a much lower willingness among lenders to finance commercial real estate. More than 46% of respondents said financing conditions had worsened during the quarter. 
German banks have also tightened lending standards. The Deutsche Bundesbank reported that banks became more restrictive in lending to businesses during the second quarter, with real estate among the sectors where credit standards had tightened most over the previous six months. Banks also indicated that they expected to tighten standards further for commercial real estate over the following six months. 
The financing pressure is important because commercial property markets in Germany have already been dealing with the effects of the sharp increase in interest rates that began in 2022. Higher borrowing costs reduced the ability of investors and developers to finance transactions and contributed to a prolonged correction in property values. 
Commercial property prices fell by 5.4% in 2024, marking the fourth consecutive year of decline at that point, according to VDP data reported by Reuters. The market had subsequently started showing signs of stabilisation, but the recovery remained limited. 
There are still some indications that lenders remain interested in selected parts of the German real estate market. A CBRE survey found that lender appetite for German and European real estate remained relatively strong in 2026, although geopolitical uncertainty was identified as a major challenge because of its effect on inflation and interest rates. Offices also saw increased interest among lenders compared with the previous year. 
Tolckmitt said the direction of the commercial property market would depend partly on how and when the various geopolitical conflicts are resolved. For the German market, this leaves the recovery closely linked to the cost and availability of financing as well as broader economic conditions. 
The latest price decline therefore comes at a sensitive stage for the sector. After several quarters of improvement, commercial property values have again come under pressure, while lenders are becoming more cautious and borrowing costs remain an important factor in investment decisions. 
Source Reuters